Mitigate Risk with 3(38) Fiduciary Investment Management

Kimberly DeAngelis |

When an employer decides to sponsor a qualified retirement plan, they accept certain fiduciary
responsibilities. One critical responsibility is the management and control of the plan assets.
Discretionary authority over qualified plan investments is a heavily regulated function.
Adherence to the Prudent Expert standard carries additional liability. Sponsors who properly
use a 3(38) Fiduciary Investment Manager may delegate the fiduciary responsibility for
investment-related decisions and shield themselves from the associated liability.

The Plan Trustee, named in the Plan Document, is responsible for the plan’s assets. In a small
business, a company officer often performs this function. In a typical 401(k) plan, the sponsor
will hire a financial advisor to assist with this duty. However, not all advisors are the same nor
do they provide similar services in this capacity. For example, in the absence of a 3(38) Fiduciary
Investment Manager, the sponsor may be responsible for making important discretionary
investment decisions. When acting in this capacity, the sponsor accepts the risk that comes
with those decisions.

When a sponsor hires a 3(38) Fiduciary Investment Manager, they entrust their full
responsibility to prudently select and monitor the investment options to the fiduciary
investment manager, effectively transferring the liability for investment decisions from the
sponsor to the investment manager. A 3(38) Investment Manager acknowledges his or her
fiduciary status in writing, accepts full responsibility for managing the plan’s assets and is
required to act in the client’s best interest.

Under this arrangement, the sponsor is still a fiduciary, but if a 3(38) Investment Manager is
properly appointed and monitored, the responsibility for investment decisions is successfully
delegated to the third party. Note that the sponsor will always retain the responsibility for
overseeing and selecting the plan’s service providers, including the investment manager. This
duty includes a periodic review of the investment manager’s performance and fees.

When selecting financial advisors for their qualified plan, sponsors should be aware of the
differences in advisory services and the level of risk associated with each. Sponsors may choose
to mitigate their risk by delegating the responsibilities from which the liability stems. If
properly implemented, the use of a 3(38) Fiduciary Investment Manager effectively reduces
the risk associated with investment-related decisions and liability.

Christopher Ricci
Briggs Advisory Group
(401) 334-3400

Investment advisory and administrative services provided by Buckingham Strategic Partners, LLC ("BSP"). Buckingham Strategic Partners is
considered to be an investment manager under Section 3(38) of the Employee Retirement Income Security Act of 1974 (ERISA) only for those
portfolios and funds approved and administered by BSP. Plan advisors and trustees may have other fiduciary obligations independent of those
which are assumed by an ERISA Sec. 3(38) investment manager.

This section is intended as a general discussion on the subject matter and is not intended to be a complete discussion of ERISA or fiduciary
duties under ERISA. Do not rely on this section for legal advice. Each ERISA fiduciary issue has its own unique set of facts and
circumstances demanding specific attention. Seek the advice of competent ERISA legal counsel on any questions concerning ERISA duties.